Caesarstone Sdot Yam Ltd., based at an Israeli kibbutz, or collective community, called Sdot Yam, late Wednesday priced its IPO on Wall Street at $11 a share. That’s below the range it estimated in its prospectus of $14 to $16 a share.

The 25-year-old company, whose engineered quartz slabs are used to make countertops, baths, floor tiles, stairs and more, offered nearly 6.7 million shares in the IPO.

Caesarstone
CSTE, -0.34%
sold 5.67 million shares in the deal and its two key holders – the kibbutz and an investment firm, Tene Investment Funds, together sold one million. The two holders also gave the underwriters an option on almost one million more shares if buyers demand them.

After the offering, assuming the underwriters exercise the option, the kibbutz will hold 53.3% and Tene 23% of Caesarstone.

Communal society to competitive enterprises

The prospectus lays out the context for offerings like Caesarstone’s. Last century, the kibbutz was developed as “a communal society in which all members share equally in all of the society’s resources, [providing] for the needs of the community.”

But over time, many residents of the kibbutzim became less interested in the ideal and more interested in earning what each of them could. A number of the collective farms have privatized, selling land to their residents and launching industries in a number of fields.

Kibbutz Sdot Yam was founded in 1940 and is located near the Mediterranean coast and the town of Caesarea. Many members of the kibbutz work for Caesarstone.

Caesarstone says quartz is the fastest-growing countertop material and better resists scratches, stains and heat than granite, laminate and other materials do. The firm’s website says the company’s patented process combines the “innate strength of quartz” with polymers and pigments to create a variety of colors and finishes.

It sells its quartz slabs in 42 countries through direct sales and distributors. Last year it bought its U.S. distributor and now gets the majority of its U.S. revenue through direct sales there.

Connection to construction

For 2011, Caesarstone reported that net income rose 1.9% to $1.06 a share from $1.04 in 2010. Revenue climbed 31% to $259.7 million from $198.8 million.

Of that 2011 revenue figure, Australia accounted for a bit more than a third, the U.S. and Canada together generated another third, and Israel 15%, the prospectus says.

From 2005 to 2007, revenue at Caesarstone grew at an annual compounded rate of nearly 38%. During “the more challenging global economic environment from 2007 to 2011,” the compounded annual rate was nearly 19%, the prospectus says.

What’s critical going forward in a tough world economy is that the company’s business is tied to home remodeling and new construction.

Caesarstone estimated the 2010 global market for countertops at $68 billion of sales to end consumers, including installation and related costs.

“Despite the recent economic downturn,” the prospectus says, “we believe that the home-building and renovation and remodeling market will recover and drive long-term demand for countertops.“

And emerging markets like China and Latin America “will contribute to growing long-term demand for countertops” as well, it says.

Risk factors

The risks in the company’s business, it says, include competitive pressures and higher costs of raw materials, which have pressured its profit margins.

In addition, the company is facing legal claims tied to silicosis, a disease that can arise when a person inhales silica dust.

Fourteen lawsuits have been filed by fabricators of Caesarstone products or those companies’ employees, who claimed exposure to silica dust when they cut, sanded, polished and otherwise worked on Caesarstone’s products.

The lawsuits demand $6.1 million of damages but the company can’t estimate the ultimate total that the plaintiffs might demand, the prospectus says. For now, partly because of its insurance coverage, Caesarstone doesn’t expect the lawsuits to materially hurt its financial position.

J.P. Morgan Securities, Barclays Capital and Credit Suisse are running the books for the offering, which Caesarstone expects to close on March 27.

Tel Aviv Stock Exchange Thursday

On Thursday, the Tel Aviv Stock Exchange’s TA-25 Index inched up 0.05% to 1115.74. That put the benchmark up 0.6% for the week and up 2.8% for 2012 to date.

The TA-100 Index (TA100) advanced 0.45% on Thursday to 1025.44. That left the index 1% higher for the week and 4.8% up for the year to date.

The Bank of Israel set its representative rate for the shekel on Thursday at 3.755 to the dollar. That buck thus dropped 0.4% against the shekel for the week and it’s off 1.7% against the Israeli currency so far this year.

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